«Economic challenge or how two strangers meet in an unknown city»

«Economic challenge or how two strangers meet in an unknown city»

Mikhail Zeldin, student of the Behavioral Economics program, tells about how he developed the first crowdfunding platform in Russia, ran for municipal elections and chose a program for training. Mikhail talks about the Prague Summer School of Behavioral Economists and his own research on entrepreneurial behavior.

It's raining outside, and, despite the quarantine, taxi drivers will work averagely less than on a sunny day. Although both demand and rate are higher today. Why? They seem to be able to earn more money in the same amount of time. But they reach quickly the psychological limit they have. Let's say, they want to make 5,000 rubles a day. And this amount turns out to be more important than the working time: as soon as the taxi drivers reach it, they want to finish the work and go home. And if the most optimal behavior in this situation were designed by the machine, it would decide that it is necessary to work longer today so that to have a rest tomorrow.

Mikhail Zeldin

We are talking with Mikhail in the midst of the coronavirus crisis.

- You have been working in the crowdfunding platform Boomstarter for 3 years since its launch, when the concept of crowdfunding sounded like a spell from Harry Potter universe. You were looking for ideas for creative projects and startups that need funding. How can a crowd producer find a forward-looking startup? How can crowd investors and a good idea without money meet? How did you look for them and introduce them?

The simplest thing is, of course, to watch which crowdfunding projects are successful in the West and look for something similar here. They are, as a rule, universal: for example, board games are very successful in crowdfunding, auteur cinema too. Book publishing using crowd investments stands out in Russia. You define the topic and start literally digging manually the Internet: e.g. board games - what forums are on them, who are opinion leaders, who seem promising, and then you write to them.

At that time, very few people understood what crowdfunding was - only in the last couple of years the word was learned to write without mistakes. But then it had to be proved that is was not a fraud, not a conditional "MMM".

- And who crowdfunding works more successfully for: organizations or individual authors? For example, it is obvious when some social project or cultural platform is looking for funding for its project. They already have their own audience, which they are close to; they have clear competencies, because their staff is professionals. Why would people chip in for the invention of some Do-it-yourselfer?

This is a very emotional decision; it cannot be explained only by profit or some other rational model. For example, there is a frigate "Shtandart", which sometimes comes to St. Petersburg, - its team raised money for new sails on Boomstarter. Who needs to chip in for sails of some out-of-date ship, a replica of the times of Peter the Great, which always floats in the middle of nowhere? But no, such a fairy tale is important for people, it makes the world a little warmer and better in their eyes.

Or, for example, Alexander Semyonov, the Russian Jacques-Yves Cousteau, who travels around the world with Aquatilis expeditions and studies deep-sea creatures. They, for a minute, make up 80% of the living world, and good if they have been at least ¼ studied.

Thousands of such projects have passed through my hands! I saw how they started and where they ended up.

The projects that I had consulted have raised more than 100 million rubles (not only on Boomstarter).

In my opinion, such projects are financed, first, because of valuable content that resonates with potential investors. Second, some newsbreak: people like to think that they were first among the others to know about the project, as they say, before it has become the mainstream. Third, and it is important, the opportunity to participate in something good, to change the world for the better. Crowdfunding is an easy way to do it all together. And, of course, the last thing is a reward for your contributions. If you chipped in for any gadget, it is important for you to get it one of the first. I should be getting some super cool Kickstarter headphones that I funded a year ago.

But today even large corporations like Xiaomi or Sony use crowdfunding. For them this is a test of the demand for the product that they are going to bring to the market.

- What happens when you find an interesting project? What was your role as a crowd producer? Were there technical consultations (how to get on the platform) or strategic things like positioning, promotion, PR?

The second is more. Later, with one of our Boomstarter colleagues we even opened the Crowdhunters agency to consult the authors of projects that are hosted on crowd platforms. Dozens of marketing tasks were worked out there. I brought the authors together with media resources, with influencers, went to advertising shoots by myself, helped with positioning and strategy.

Then the guys came up with the term crowd producer, because it's really closer to producing.

- What pushes a person to study again at the stage, when, in fact, he has formed some kind of niche market and has a reputation as an evangelist in it? At what moment does he get the idea that everything is fine, and all that is missing is a master's degree in behavioral economics?

After having received my bachelor's degree, I honestly thought that my education was enough. But after Boomstarter, I went to the Technion for six months to study project management in Israel. A year later, when I and my partner were developing a rather popular video production (we launched YouTube projects, filmed content and advertisements for TV channels), I decided to receive a master's degree. 

It's hard to say now: maybe it is because both of my grandmothers are doctors of science, and I always had the idea that a fully-fledged higher education with a master's degree is a career advantage. And an intellectual challenge as well, it's interesting.

That’s why I chose directly among the strong universities who have a reputation. At first I thought of going to politics, but ironically, it was the politics that prevented me from immediate entering MSSES.

- ???

Then in Moscow there were elections to municipal councils. And I decided that participation in the elections as an experience would be more important for me than entering a university. I wanted to assemble an independent team in my area, to unite people somehow, to assemble a headquarters. In the end, however, I ran as a self-nominated candidate: I hadn't managed to organize people, so I realized that I had to go myself.

Therefore, that year I missed my admission. But I prepared well next year, and this time I decided to go to Behavioral Economics. It was difficult to prepare for exams and work at the same time. As a result, I had a high score in psychology and a low one in economics. It means that I shouldn’t have passed. 

But two weeks later, when I already thought that everything was over, I was called me from MSSES and asked: "Would you like to study at MSSES?" I said that, of course, I wanted, but I hadn’t passed! And they answered me: "You haven’t passed through the competition, but we have 2 additional places." 

- What are the behavioral economists’ classes in MSSES? Behavioral economics is associated with some kind of psychological tricks that marketers subtly use to form consumer strategies in people. In this sense, it is interesting how the training of behavioral economists works. Is it really just sitting in the classroom with a notebook or laptop?

I am not sure if there any practical behavioral economics classes exist. It can be understood very narrowly (and this is also found at universities) as part of the general course of economics, where some cases of economic behavior are discussed, the sequence of decisions and motivations in which can be fixed, and explained why people behave that way.

We have such a program, where most of the psychology subjects are taught in MSSES in a format designed for practicing psychologists. And the second block is advanced economics, which allows you to understand the models that economists operate when they write their articles on behavioral economics. It is given by the RANEPA.

Economics studies not only financial processes or markets, but also, for example, decision-making problems. How do people make decisions, how to predict and explain them? As a science that strives for precision, economics builds decision-making models using mathematical language. If you open important articles on behavioral economics, you will find formulas.

For example, one of the main theories in behavioral economics is perspective theory. It shows that a person's decision-making depends on how valuable the benefit seems to him, considering its likelihood. Our cognitive system does not work like a computer - in some situations it helps us, but in others, on the contrary, it hinders. This is exactly of interest to the economist: regular, systemic patterns of behavior can be used to predict it.

Any decision-making can be a challenge for an economist. For example, how can two strangers meet in an unknown city without having any connection between each other? This is an economic challenge! And in order to find a solution for it, one must resort to the explanations given by psychology.

In each term there are scientific and practical classes that help to prepare for the master's thesis. For example, there was a very good course "Methodology of psychological research" about how to conduct this research, quantitative and qualitative methods, how science differs from non-science, what are the problems of psychology as a science, etc.

A master's thesis is always based on some kind of research, whether it is field observation or analysis of existing data. In our course, the guys analyzed, for example, the behavior of taxi drivers, consumers of banking services and top managers. In my case, this is the psychology of entrepreneurship. Since autumn, almost everything I have been doing in MSSES is somehow connected with this topic.

- Well, you are writing the work on the psychology of entrepreneurship and you say that there must be research there. What is your research?

Trying to describe some kind of economic behavior, it is not always possible to get by with the existing models. We have to resort to other interpretations of cause-and-effect relationships. In the end this leads to different psychological theories describing the given behavior or phenomenon.

That’s why it is not surprising that the founders of modern behavioral economics are psychologists, and a significant part of the leading economists have a psychological education or work together with psychologists. And this is one of the advantages of the program at MSSES - we have the opportunity to analyze economic phenomena from the point of view of cognitive psychology.

One of the nicest things about crowdfunding is that you communicate with the most creative people in the country. This experience gives you a lot of influence; it is difficult to replace it later.

I research the behavioral factors that precede a person's decision to become an entrepreneur - the predictors of intention. In theory, anyone can become an entrepreneur, more or less successfully. You can become an entrepreneur by force. Or inherit a business. And I study the psychological factors that underlie entrepreneurial behavior.

For example, entrepreneurs are characterized by high self-confidence, unlike ordinary employees, because they need to make risky decisions. And they need to be ready to move forward for this, despite potential failure.

- How do you find it out? Do you have a field stage in your research?

I look at current entrepreneurs, non-entrepreneurs, and students, dealing with business programs. Business psychologies, MBA are such programs. Now my research involves almost 500 people - this is the audience that I managed to attract with the help of business communities and the media. I asked, for example, Rusbase - one of the leading Russian business publications - to add my survey to their mailing list. The Internet Initiatives Development Fund added it to the mailing list, Institute of Business and Business Administration, RANEPA. I surveyed the target audience at various business events - on the FinNext financial innovation forum, for example.

- Did you develop the metric for analysis by yourself?

All the psychological metrics that I use in my research have already been tested and validated somewhere. But their combination and general methodology are quite original for me. Typically, research on this topic is simpler and smaller in scale.

For example, basing on the survey data, I determine what degree of illusion control a particular entrepreneur possesses. In my case, this is precisely an entrepreneurial characteristic, when a person thinks that he can control events that do not depend on him. “Even though most people fail on this project, I’m the one who will make it successful!”

I look at how these characteristics differ for different types of entrepreneurs, comparing entrepreneurs with students who are preparing to become them, and non-entrepreneurs. And the result should be a method of consulting or the development of an educational module for businessmen training programs.

- Did you go to the Summer School of Behavioral Economics in Prague for this?

No, it was a grant - a present from MSSES. Prague Summer School has been running for 15 years with the support of the local municipality and Czech public figures. They have a number of programs, sometimes they change, and one of them is behavioral economics. And every stream on our program in MSSES participates in this summer school.

It was necessary to submit an application, attach a letter of motivation and resume. At that time, I had only 8 people in the group, and half of them (everyone who applied) went to Prague Summer School. We even had our course exams earlier than others.

- And how was the summer school in behavioral economics organized? What have you been taught?

In general, it takes a week: classes are very intensive, 4-6 classes a day. We were settled in hotels in a nice residential area of ​​Prague. The school had several training placements - various community centers in the area that provided school with their places. And each group worked on its own place, but sometimes we met on common classes.

There were about 9 lecturers - lecturers from Czech, Dutch, German universities, and each has their own specifics, based on how they explained some phenomena in behavioral economics. One of them told about biological factors of behavior and evolutionary psychology, another - about how behavioral economics is used in politics. And there were some practical approaches: the use of behavioral economics in organizational consulting, for example.

In the EU, North America, South Korea, Singapore, behavioral sciences are already a traditional element of organizational decisions and social policy in general. In Russia, this is still hardly used: this area is just being formed here. There are only 3 programs that seriously deal with behavioral economics: at HSE, Moscow State University and MSSES. And all of them are less than 5 years old. Three of the most famous behavioral economists - Daniel Kahneman, Robert Schiller and Richard Thaler - won their Nobel Prizes in 2002 and 2017, respectively. So we still have everything ahead!